FIN-516 – WEEK 3 HOMEWORK ANSWER KEY OPTION PROBLEM NO. 1 Exercise Value: Current Stock Price – Strike Price Exercise Value: $36 - $30 = $6 Time Value = Option Price – Exercise Value Time Value = $9 - $ 6 = $3 OPTION PROBLEM NO. 2 Time Value = Market Price of the Option – Exercise Value $7 = V - $23 V = $30 Market Price Exercise Value = Po – Strike Price $23 = Po - $21 Po = $43 Price of the Underlying Stock PROBLEM 15 - 4 S = (1 – wd) (Vop) = (1 – 0.4)($500)
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